SEC Investor Advocate Favors User Fees for Advisers

The SEC’s Investor Advocate, Rick Fleming, added to the noise about how the SEC should improve investment adviser examinations. InvestmentNews reported that Mr. Fleming feels that the SEC’s $150 million budget increase is insufficient to make a significant improvement in examination coverage (currently at approximately 10% of advisers per year). Mr. Fleming did not opine on how frequently advisers should be examined. He is an advocate of charging advisers user fees for the SEC to fund more frequent examinations. The user fee bill introduced by Representative Maxine Waters (D-CA) seems to be dead at this current time.

2014 has been an interesting year for the SEC’s initiative to “improve investment adviser examinations.” Improving exams has become synonymous with doing more exams, rather than really considering improving efficiency and effectiveness.

The SEC published a report in January 2011 which recommended: i) requiring advisers join an SRO, ii) imposing user fees on advisers to pay for exams, or iii) giving SROs that examine broker-dealers (aka FINRA) the authority to examine the advisory activities of those firms. Since then, a fourth option, independent examinations of advisers, has also been discussed. Over that four years, each option has taken turns being the favorite.

So where do we stand now? An SRO for advisers has fallen behind the other options, but it’s never dead. User fees seems to be the favorite, but independent examinations are picking up steam. A benefit of going the independent examination route is that the SEC would not need congressional support to implement it. However, it doesn’t appear that we are much closer to any conclusion going in to 2015.